Traders work on the floor of the New York Stock Exchange during afternoon trading on July 18, 2023 in New York City.
Michael M. Santiago | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
The bottom line
Something is breaking in financial markets, writes CNBC’s Jeff Cox. Unlike in March, when regional banks started toppling, it isn’t any particular asset class that’s cracking this time. Rather, it’s the narrative of low interest rates in the long term — one that’s become familiar after the 2008 Great Financial Crisis — that’s falling apart.
After markets digested the stronger-than-expected JOLTS report from the U.S. Labor Department — which showed the jobs market wasn’t as slack as conventional wisdom dictated — Treasury yields jumped. The 2-year yield, indicative of where markets think interest rates will settle, is currently at 5.154%, compared with last Friday’s close of 5.048%. Indeed, the chance that the Federal Reserve will hike rates at its November meeting by another quarter percentage point rose to 28.1% Wednesday, compared with 16.4% last week, according to the CME FedWatch tool.
Stocks were slammed by rising yields and the expectation of more hikes. The Dow Jones Industrial Average had its worst day since March. Its drop of 1.29% wiped out its year-to-date gains, and it’s now 0.4% lower for the year. The S&P 500 slid 1.37% and the Nasdaq Composite slumped 1.87%, weighed down by losses in technology stocks like Nvidia and Microsoft.
Investors fear the worst isn’t over. The Cboe Volatility Index, which measures where traders think stocks will be over the next 30 days, is at its the highest since late May, signaling volatility ahead. (However, at 19.78 currently, it’s still slightly below the long-run average.)
“US Equity markets are likely in a bottoming process,” Fundstrat head of technical strategy Mark Newton wrote, “and I feel that time-wise, lows could likely be in place sometime this week.” But if rates continue rising, it’s not just long-held beliefs that will be broken. Stocks could test new bottoms even further into the year.
“They can’t hike another basis point,” Larry McDonald, founder of The Bear Traps Report, said of the central bank. “It’s just too much pain. This type of action is bringing out the pain, and the Fed is now more aware of the bodies that are buried.”
— CNBC’s Jeff Cox contributed to this report.